The logic of gift card rebates
In my last post on credit cards, I discussed using them for the rewards and rebates.
This brings up an interesting question, which I have often wondered about. Why do rewards cards offer you a choice between, say, a $25 check and a $25 gift card to various stores?
Isn’t a $25 check always more useful than a $25 gift card? Even if you are going to buy something from Amazon, you are no worse off getting $25 in cash, versus getting a $25 Amazon card. And some credit card companies even offer a “statement credit” which is applied directly to your account, so you don’t even have to go cash the check, you just pay $25 less on your credit card.
Granted, if you carry a balance, and you SHOULDN’T, a statement credit may be worth less to you, because it doesn’t put money into your pocket. But if you pay off your balance every month, a statement credit is effectively the same as direct depositing the amount into your checking account.
But, even if you carry a balance, and don’t want a statement credit, a check is still better than a gift card, right? Unless you buy something for that exact amount, you still have to enter another form of payment for the difference, which is arguably as much of a hassle as physically depositing the check in the ATM.
So, if gift cards are never better, and are at best, equal to a check, why do they even offer them? Better yet, why do people select them? I am assuming here that the face amount is equivalent, which has been the case in all circumstances I have seen. If the gift card is for more than the check, that is a different argument.
If you routinely select the gift card over the check, please post in the comments and let us know why. Maybe there is something I am missing, and I would love to learn about it.
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There are a few reasons why you’d want the gift-card over the check. First, in many instances, there is more money associated with it. My wife and I get points on our credit cards for which we can be reimbursed some amount of money in a check card or roughly double in one of a list of proprietary retail outlets. So, it’d be like a $50 gift card to Applebees or a $25 check card. Which we take is usually dependent upon whatever our budget is, but it’s usually the food gift card.
Second, in instances where the amount is the same (as in your example), the choice of which to take is based upon where you’ll spend the money. If you’re going to spend money at … say Barnes and Nobles or Borders anyway, having a predefined card that is a concrete limit can help reduce frivolous spending. If you’re in a situation where you have X amount of money, and you haven’t alloted it to a particular venue, it is very easy to spend entirely too much. That is where it’s nice to have a vendor-specific gift card. If you only have a $25 or $50 gift card for Borders, you’ll will often spend less and won’t have to worry about whether or not you have the money – something that can happen a great deal if you don’t balance your checking account registry.
Ultimately, I think its the coupon argument. Take breakfast cereal for instance – lots of those little boxes are a bit too expensive their own good. Cheerios, for example, costs something like $4 for their bigger box. They often have $.50 coupons (or more, plus double coupon days, etc) but the net result is that you’re likely to pay, on average, the full $4 (maybe you forgot your coupon or maybe you got a different type than the coupon explicitly described, and so you can’t use it anyway). So you have a whole slew of cereals that are standing there offering the coupon discounts, hoping you’ll forget or be too lazy to find/have the coupon, and ultimately overcharging everyone.
So – perhaps the real answer is marketing … like how, with proper product placement and the resulting brand loyalty, a company can offer a $50 gift card knowing that the emotional importance, comfort, and convenience associated with the gift card will result in some large percentage of return.